Market Close: Jan 26 Up

Fears of a potential Russian attack on Ukraine haven’t let up, helping lift oil futures on Wednesday back to their highest prices in more than seven-year highs. “If Russia does invade, we would expect oil prices to go parabolic,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch. A full conflict between the two nations could lead the West to impose oil-related sanctions on Russia, which is among the world’s biggest oil producers — further tightening the world’s supply of crude oil. Meanwhile, a second straight weekly rise in U.S. crude stockpiles failed to disrupt the rally in oil prices and traders were also keeping a close eye on the Middle East after recent drone attacks by Yemen’s Houthi rebels on oil facilities in the United Arab Emirates.

West Texas Intermediate crude for March delivery rose $1.75, or 2%, to settle at $87.35 a barrel on the New York Mercantile Exchange. March Brent crude, the global benchmark, climbed $1.76, or 2%, at $89.96 a barrel on ICE Futures Europe after tapping a high at $90.47. Both grades settles at their highest prices since October 2014.

“The barrel price action is being determined by growing apprehension that ongoing supply issues may worsen due to the escalating tension between Russia and the West over Ukraine and the threat of military attacks on infrastructure in the Middle East,” said Ricardo Evangelista, senior analyst at ActivTrades, in a note. Moscow warned Wednesday it would quickly take “retaliatory measures” if the U.S. and its allies don’t accept Russia’s security demands and continue their “aggressive” policies. Russia, while denying plans to invade, has massed around 100,000 troops near the Ukraine border. The U.S. and its allies have threatened heavy sanctions against Russia if it does invade. Diplomatic efforts to defuse the crisis continue, but have shown no signs of progress.

The United Arab Emirates on Monday said it intercepted two ballistic missiles targeting its capital, Abu Dhabi, with Iran-backed Houthi rebels blamed for brewing conflict in the region. Oil prices were lifted last week after the Iran-aligned Houthis claimed responsibility for an attack that targeted a key oil facility in Abu Dhabi, killing three people. The rally in prices continued after the release of weekly oil data from the Energy Information Administration on Wednesday.

The government agency said U.S. crude inventories rose by 2.4 million barrels for the week ended Jan. 21, following a 500,000-barrel increase the week before. On average, analysts had forecast a fall of 2.1 million barrels, according to a poll conducted by S&P Global Platts. The American Petroleum Institude on Tuesday reported an 872,000 million-barrel decline, according to sources. The EIA also reported a weekly inventory climb of 1.3 million barrels for gasoline, while distillate stockpiles fell by 2.8 million barrels. The S&P Global Platts survey expected a supply gain of 2.2 million barrels for gasoline and an inventory decline of 1.6 million barrels for distillates.

Data from the EIA and DTN suggest that “distillate fuel oils used primarily for heating and electricity generation are a growing source of the EIA’s distillate fuel oil demand strength in recent weeks,” said Troy Vincent, senior market analyst at DTN. “This phenomenon is helping overshadow the recent weakening trend in U.S. on-road diesel demand.” The EIA data also showed crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 1.8 million barrels for the week, while crude stocks in the Strategic Petroleum Reserve were down by 1.2 million barrels.

The Energy Department announced late Tuesday that it approved seven exchange contracts for the release of 13.4 million barrels of crude oil from the SPR. The releases fall under the authorization published in the agency’s announcement on Nov. 23. Oil prices showed little reaction Wednesday to the Federal Reserve statement, which didn’t appear to offer any surprises, analysts said . The central bank said it expects it will soon be “appropriate” to raise interest rates. Prices got a boost in “anticipation of a harsh winter storm that may sweep across the Northeast over the coming days, said Christin Redmond, commodity analyst at Schneider Electric, in a note.

Meanwhile, a Russia-Ukraine conflict could disrupt the flow of natural gas to Germany, said Tyche Capital’s Zahir. The Biden administration is looking at ways to secure energy for European allies if Moscow cuts oil and natural-gas exports, CNB reported Tuesday . Still, the current tensions are supporting a rise in U.S. natural-gas prices, Zahir said. If gas supplies are cut, “Germany and others will have to switch to diesel for their heating needs,” he said. “Bottom line, crude will remain a bid until we get some clarity on the situation with Russian and Ukraine.”